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Implications for masterplan/demand assessment Approach to be followed Identify rail services that have a role in transport system – can recoup their costs For other services initiate development of exit strategies

Very preliminary simple approach Key aspects Investment in rail has very long life and can not be moved Institutional transformation Potential and performance is impacted by government investment and pricing policies competition of other modes Essential for Government to get it right – policies &amp; infrastr investment

Focus of market assessment 4 main lines of business General approach to be followed Identify services that cover costs and can play a role in transport system Focus for transport tasks that do not cover costs exit strategies how to serve transport needs at lower cost

If siding to siding transport, rail is only lower cost at 5 million tonnes If pick up and delivery cost, road remains lower cost even at 5 million tonnes

Sector policies Price regulation Subsidies for economy passengers Indirectly capacity limitations on economy Market entry Infrastructure charging Relationship between government and railway company Policies on grounds of external costs of transport European studies suggest upper limit for increase in cost ~ 25 % Impact of policies on modal shares Need for level playing field Important question. Will policies change in future

Objective of market assessment Java passenger &amp; freight services basis for investment in infrastructure by Govt/infrastructure operator At level of individual facility At level of corridor At level of subsystem or total system Basis for investment in rolling stock and planning of operations by PTKA/train operator Basis for coordination between infrastructure operator and train operator

3.
Approach to Market Assessment <ul><li>Key principles </li></ul><ul><ul><li>price: impossible to assess demand without considering price and competition </li></ul></ul><ul><ul><li>cost: impossible to consider price without considering cost </li></ul></ul><ul><ul><li>Here: economic cost not financial cost. Because point of view </li></ul></ul><ul><ul><ul><li>Government </li></ul></ul></ul><ul><ul><ul><li>economic efficiency </li></ul></ul></ul><ul><li>Questions </li></ul><ul><ul><li>Strengths of rail : what is role of rail in transport system </li></ul></ul><ul><ul><li>demand for rail in the transport markets considering cost and price </li></ul></ul>

4.
The role of rail in the transport system <ul><li>2 approaches to identify role of rail </li></ul><ul><li>Performance in market </li></ul><ul><ul><li>By main tasks/lines of business </li></ul></ul><ul><ul><ul><li>Based on revenues </li></ul></ul></ul><ul><ul><li>Growth of passenger/km, tonne/km </li></ul></ul><ul><li>Comparison of costs for different tasks </li></ul><ul><ul><li>Scenario analysis </li></ul></ul><ul><ul><li>Tonne/km cost of rail versus road </li></ul></ul>

5.
<ul><li>PTKA revenues by main line of business 2008 </li></ul>Overview of performance Line of business % of revenues Java main line passenger services 45 South Sumatra Coal 27 Jabotabek passenger services 9 Java freight 8 Java local passenger services 4 Other 7 Total 100

6.
Java main line passenger passenger/km and yield <ul><li>Overall decline of 3% p/y since 2000 </li></ul><ul><ul><li>Traffic declined sharply early 2000s but is recovering since 2004 </li></ul></ul><ul><li>Highlights 2000 - 2008 </li></ul><ul><ul><li>executive: + 0.7 % and yields and distances are good </li></ul></ul><ul><ul><li>business: - 4.4 % and lower yields </li></ul></ul><ul><ul><li>economy: -3.8 % low yields are topped up by PSO </li></ul></ul><ul><ul><li>local: + 7.2 % low yields are topped up by PSO </li></ul></ul><ul><ul><li>Conclusion: loss of market share – except for local </li></ul></ul><ul><li>This requires in-depth analysis – market research </li></ul><ul><ul><li>When was high point reached </li></ul></ul><ul><ul><li>What was impact of deregulation in competing modes </li></ul></ul><ul><ul><li>What was impact of aggressive performance competition </li></ul></ul><ul><ul><li>What was impact of economic crisis </li></ul></ul><ul><ul><li>Other factors ??? </li></ul></ul>

10.
New coal railway lines <ul><li>Several studies and proposals for new lines </li></ul><ul><li>Sumatra: </li></ul><ul><ul><li>objective: to enable increase in production </li></ul></ul><ul><ul><li>part of new logistics chain from mine to a vessel loading point </li></ul></ul><ul><ul><li>example: new line to transport Bukit Assam coal to new deep water port at Tanjung Api Api, also involving construction of a bridge across Musi river: 3 major investments ! </li></ul></ul><ul><li>Kalimantan: </li></ul><ul><ul><li>part of logistics chain for a new mine (or group of new mines) to a vessel loading point. </li></ul></ul><ul><ul><li>example: proposals for Kalimantan lines. </li></ul></ul><ul><li>Feasibility is dependent on outlook in coal markets and ability to obtain firm purchase agreements </li></ul><ul><li>Challenges impeding realization </li></ul><ul><ul><li>all elements of logistics chain need to be developed </li></ul></ul><ul><ul><li>approvals of many central and local govt agencies </li></ul></ul>

16.
Theory and reality why is rail carrying traffic that would be lower cost by road ? <ul><li>Combination of factors </li></ul><ul><li>No charging for infrastructure </li></ul><ul><ul><li>rail and road are competing on basis of their operating costs </li></ul></ul><ul><ul><li>higher rail infrastructure cost are not recovered </li></ul></ul><ul><li>No detailed traffic costing </li></ul><ul><ul><li>rail may not be fully aware of the real costs of some traffics - multi-product enterprise </li></ul></ul><ul><ul><li>depreciation on basis of historical cost </li></ul></ul><ul><ul><li>Govt. contributions in kind in the past </li></ul></ul><ul><li>business as usual – legacy of past </li></ul><ul><ul><li>is not sustainable. </li></ul></ul><ul><ul><li>“ above rail” costs are probably not recovered </li></ul></ul>

33.
New (coal) railway lines (2) <ul><li>Outlook has now improved </li></ul><ul><ul><li>Minimum volumes (5-10 million tonnes) </li></ul></ul><ul><ul><ul><li>available in principle in Kalimantan </li></ul></ul></ul><ul><ul><ul><li>In Sumatra if major increase in output at existing location </li></ul></ul></ul><ul><ul><li>Legal framework available </li></ul></ul><ul><li>Remaining issues/challenges </li></ul><ul><ul><li>Implementing regulations to be developed </li></ul></ul><ul><ul><li>Collaboration for minimum off-take commitments </li></ul></ul><ul><ul><li>Government facilitation and coordination during development stage </li></ul></ul><ul><ul><ul><li>One stop shop </li></ul></ul></ul>